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Sharma Textile Vs. Income-tax Officer. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Amritsar
Decided On
Reported in(1986)17ITD97(Asr.)
AppellantSharma Textile
Respondentincome-tax Officer.
Excerpt:
.....from the said judgment of the high court of karnataka is enclosed herewith." the judgment of the karnataka high court in the case of s. govindaraju v. cit [1982] 138 itr 495 and an extract from that was enclosed with the application under section 154. the ito rejected the plea of the assessee in the order under appeal. the assessees appeal before the aac has also been unsuccessful and, hence, this appeal to the tribunal.2. we have heard the rival submissions, and given deep thought to the issue in hand. shri. d. n. sehgal, the learned authorised representative of the assessee, emphasised the aspect basis himself on the karnataka high court decision in s. govindarajus case (supra) that the ito should not have acted mechanically and should have applied his mind and followed the procedure.....
Judgment:
Per Shri P. K. Mehta, Accountant Member - The assessee is in appeal in respect of ITOs order under section 154 of the Income-tax Act, 1961 (the Act), dated 7-11-1983 on its application dated 10-1-1983 relating to the assessment year 1980-81. In the assessment order dated 24-9-1982, the ITO had charged interest of Rs. 630 under section 139(8) of the Act and Rs. 870 under section 215/217 of the Act. The relevant extract from the assessment order is as under : On account of the rectification order the amount of both the interests got reduced to Rs. 570 and Rs. 790. Apart from the change in the quantum of interest payable in the rectification application the assessee had pointed out another mistake apparent from record in paragraph 2, quoted below, with which we are concerned : "2. Interest under sections 139(8) and 215/217 has been charged without following the proper procedure. The High Court of Karnataka has held in its order dated 5-2-1981 that penal interest cannot be charged as a matter of routine. The ITO must issue a notice to the assessee proposing to charge interest and inviting his objection or explanation, if any. On the assessees failure to render satisfactory explanation, interest can be charged. An extract from the said judgment of the High Court of Karnataka is enclosed herewith." The judgment of the Karnataka High Court in the case of S. Govindaraju v. CIT [1982] 138 ITR 495 and an extract from that was enclosed with the application under section 154. The ITO rejected the plea of the assessee in the order under appeal. The assessees appeal before the AAC has also been unsuccessful and, hence, this appeal to the Tribunal.

2. We have heard the rival submissions, and given deep thought to the issue in hand. Shri. D. N. Sehgal, the learned authorised representative of the assessee, emphasised the aspect basis himself on the Karnataka High Court decision in S. Govindarajus case (supra) that the ITO should not have acted mechanically and should have applied his mind and followed the procedure mentioned in the Karnataka High Court decision, namely, he should have issued a notice to the assessee proposing to charge interest and invited his objections or explanation and thereafter considered the explanation given. It was further stated that if that was found unsatisfactory then only interest could be charged. It was contended that for the ITOs failure to follow the proper procedure both the penalties should be quashed. Attention was also invited to a decision of this Bench in the case of Suresh Chander Mehra (HUF) [IT Appeal No. 355 (Asr.) of 1983, dated 19-3-1984]. The revenue, on the other hand, relied on the orders of the authorities below and contended that there was no mistake apparent from record.

3. For deciding the issue before us, we may begin by observing that the issue has arisen on the basis of an application under section 154 dated 10-1-1983 moved by the assessee pointing out certain mistakes apparent from record. We are concerned with the mistake pointed out in paragraph 2 quoted above. It is a first principle that in rectification proceedings the decision will have to be made only on the issue raised and not on any other issue, which might go in favour of the assessee and let him succeed in his request for rectification. Unfortunately for the assessee there is a conflict of opinion amongst the High Courts on the question of the procedure to be followed by the ITO for charging of the interest. The Allahabad High Court in Addl. CIT v. Saraya Distillery [1978] 115 ITR 34 has reiterated its opinion previously held : ".... For charging interest for default or shortfall in payment of advance tax due, the Income-tax Officer is not required to pass any formal order. Under the law he is required to calculate the interest in the manner provided under the Act and the Rules framed thereunder ...." (p. 37) Rule 46 of the Income-tax Rules, 1962 (the Rules), was specifically mentioned before the High Court. The procedure that is laid down by the Allahabad High Court is that the ITO is required to calculate the interest in the manner provided under the Act and the Rules framed thereunder and nothing more and no formal order is required to be passed. In the instant case, the ITO has included the amounts calculated of two types of interest in the assessment order even.

According to the Allahabad High Court, this action of the ITO would be enough and in accordance with law. A decision of the Karnataka High Court in CIT v. Executors of the Estate of Late H. H. Rajkuverba Dowager Maharani Saheb of Gondal [1978] 115 ITR 301 took a different view from that of the Allahabad High Court on the point of passing of an order and the High Court held that : "Having regard to the quasi-judicial nature of the proceedings under section 217, we are of the opinion that an order has to be passed by the ITO to give effect to section 217 of the Act." (p. 308) The Madras High Court has noted in CIT v. City Palayacot Co. [1980] 122 ITR 430 at pages 445-446 that the Kerala High Court has taken a view similar to that of the Karnataka High Court has taken a view similar to that of the Karnataka High Court in CIT v. Cochin-Malabar Estates Ltd. [1974] 97 ITR 466 and, therefore, there was a conflict of opinion between the High Courts. The Madras High Court agreed with the Kerala and the Karnataka High Court decisions. If there is to be no formal order by the ITO it is implied that there is no need for affording an opportunity of being heard to the assessee about why interest should not be charged; nor can the procedure followed by him be held to be a mere mechanical computation. In the instant case, it may be pointed out that the assessee in the application has merely referred to the procedure and not contended that denial of a hearing of to the assessee deprive the assessee of his right for reduction or waiver or the interest charged under the appropriate rules of the Rules and in this respect the application under section 154 is different on facts from the pleas raised in S. Govindarajus case (supra). It is nowhere suggested that there was a mistake apparent from record inasmuch as the ITO failed to consider the applicability of the relevant rules for reduction or waiver of interest in the Rules. The jurisdiction as we have stated earlier is very restrictive jurisdiction in the case of an application for rectification under section 154 and it springs from and is confined to the mistake pointed out in the application. Viewing from this angle, it has to be held that there is no mistake apparent from record within the scope of section 154. The issue has become a debatable one and the Supreme Court decision in T. S. Balaram, ITO v.Volkart Bros. [1971] 82 ITR 50 will apply. We may also clarify that the decision of the Tribunal included in the assessees paper book in the case of Suresh Chander Mehra (HUF) (supra) was not rendered in respect of an order under section 154 and the issue considered therein arose from the assessment order and related to the charging of interest under section 216 of the Act, which is an appealable section. In our view, that decision will be of no assistance when we are considering a matter arising under section 154.

4. In view of the above discussion, we uphold the ITOs conclusion though for the reasons given above and dismiss the appeal of the assessee.


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